The Discussion of Disposition Effect in Behavioral Economics

Abstract

The disposition effect is a popular topic in behavioral economics. Many kinds of research indicate investors generally have the irrational behavior of selling the winner earlier than the loser in investment. This paper is a literary review of prospect theory and mental accounting to analyze the reasons for the disposition effect. The question that is mainly discussed in the paper is the reasons that cause disposition effect and the ways that could lessen this effect and help people perform better in investment.